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Pricing the Cloud

After experimenting and testing various cloud services on a portal Pay-As-You-Go consumption model, many users will ask the simple question: “How much will this cost?” and expect a simple answer that is correct.

While this shouldn’t be difficult to answer, for many, the answer they receive is often inaccurate or incomplete; cloud service providers will often adopt different units of measurement and restricted-access pricing models making balanced comparison seem impossible.

This is compounded by the ‘barrier of entry’ to view restricted global price lists, price waterfalls connected to volume procurement contracts that are commonly only available to a limited number of accredited global organisations.

Access to an accurate cloud pricing analysis platform, requires an independent advisory practice (with expertise across commercial, governance and technical disciplines) interoperable with global accreditation as a ‘cloud broker’ for all principal service providers. Arguably, only this level of accreditation, global presence and independent consultancy across disciplines, (which is principally vendor agnostic) can support a framework for comparative pricing analysis of cloud services.

The objective for a clear cloud strategy roadmap, requires by necessity, a comparative approach across cloud service providers. Analysis should capture both commercial opportunity and associated risk of scalability and predictability for any ‘in scope’ cloud service providers. This should capture all commercial models and metrics, factoring in available procurement contracts and purchasing regions aligned to the customer business roadmap. This should extend across operational silos of commercial review, governance and compliance and technical disciplines.

A full comparative approach to cloud strategy analysis, while not in scope of this article, can be explored with SoftwareONE Advisory Services.

An Exploration of First Azure Commercial Models

This article will first review the commercial models for Azure prior to the November 1st 2013 changes for customers purchasing Azure within the Enterprise Agreement (EA) purchasing model:

Microsoft first developed the enterprise commercial model for Azure within the existing framework of the Enterprise Agreement (EA). This contractual amendment enabled purchase of scale cloud platform services in accordance with the service level agreement (SLA).

The service was accessible for one year or under a co-terminus subscription aligned to the software volume agreement; access to this incentivised price-point typically required an up-front monetary commitment, billed annually, with any overage calculated monthly and billed quarterly.

A customer could adopt to choose a forecast commitment amount ‘at signing’ to obtain better price on those units. This up-front monetary forecast, allocated monthly over the term, would support utilisation of resources of Platform Services for up-to 125% of forecast before the price point switched to ‘overage’. A customer could add to their existing ‘credited’ commitment on the first day of the subsequent month. However, any unused portion of the upfront commitment would not carry over from expiration. This was a ‘use it or lose it’ consumption model. [Original Information Source: Microsoft Operations: Changes In EA – FY14 Azure Licensing Changes]

If the committed resources promised were not available to a customer, Microsoft promised an entitlement to refund of 150% of the monetary value of the unavailable services at ‘commitment rates’, up to the total monetary value of the monthly forecasted amount based on the agreed commitment rates. If the unavailability of resources also qualified the customer for a ‘service credit’ under the Service Level Agreement, the customer would only receive the single remedy with the highest monetary value. [Ref: EAEnrAmend(Dir)(WW)(ENG)(Feb2011)]

For Windows Azure Compute, any resource commitment was calculated on the number of concurrent instances (and not the total number of compute hours represented by those instances). If the balance of upfront commitment was less than the monetary value of the forecast amount, the resource commitment would be reduced such that the remaining upfront commitment equals the monetary value of the monthly forecast amount.

Microsoft’s early embarkation into utility computing lacked the flexibility associated with elastic utility based cloud computing services. The overage consumption rate was applicable to all usage in excess of the upfront commitment and/or indeed, all usage if the customer opted to not make the upfront commitment to Microsoft. All usage that exceeded the resource commitment would only be available for consumption on an ‘as available’ basis.

Microsoft would provide 30 days written notice prior to the addition of any new platform services, and 90 days written notice prior to revocation of any existing feature of functionality (unless expedited by security, data privacy or system performance considerations). Suspension to customer access to platform services would occur if a direct or indirect threat was identified to the function or integrity of the Azure platform or other customers use of the platform. This was extended to include breach of terms within the overarching binding contractual documents (Master, Enrolment or Amendment(s)) or excess resource requirements over the pre-agreed credit limit.

Summary

Customers commit to an annual monetary amount and receive discounted commitment rates for usage against this pre-paid credit.

Services utilised in excess of the annual monetary amount were charged at overage rates

Utilisation of annual monetary commitment subject to the customer only being guaranteed 125% of their monthly breakdown of the monetary commitment. Usage in excess of this amount was on an “as available” basis

Both commitment and overage rates include the customer’s EA level discount

The service was accessible for 1 year or co-terminus with the volume agreement

Price protection against price increases were enshrined in the Customer Pricing Sheet (CPS)

Customers concerned about price decreases were recommended to order via the 1 year option.

Overage billed quarterly, with an annual option only available on an exception basis, requiring business desk approval and approval from the operations centre’s credit and collections team.

The actual detailed SKUs were ‘lead status’.

The CPS included all rates for all Windows Azure SKUs within the “Future Monthly Subscription” Pricing section.

As this was a pre-paid credit model, Microsoft required an initial upfront commitment over three years for co-terminus option (which can be prorated if a mid-term) or the 1 year equivalent on the 1 year subscription.

Any unused monetary commitment was lost at the end of the commitment term under a ‘use it or lose it’ model.

New 1 Year Subscription

This subscription ran for 12 full months beginning with the next full calendar month after the subscription is processed. For example, if the Azure amendment and CPS were processed in February the CPS should be set up to reflect 12 full months beginning March 1.

Customers received the full 12 months to use their aggregated monthly commitment. Any unused funds at the end of the subscription term were not carried forward to a future subscription or refunded.

Existing 3 Year Agreement – Co-Terminus Option

This subscription ran from the 1st of the month following when the amendment and CPS are processed to the end of the Enrollment term.

Any unused monetary commitment was lost at the end of the commitment term

Any subscription ‘added at signing’ for the duration of the Enrollment term was also considered a co-terminus subscription.

Azure changes in the Enterprise Agreement

Pricing Simplification

On November 1st 2013, Microsoft first announced a refreshed approach to their commercial models for Enterprise Agreement customers. The premise was to simplify their approach to pricing, aligning it to the Microsoft EA price band ‘waterfall’ (Level A-D) and removal of the previous combined approach of tiered percentage (%) discounts for the up-front monetary commitment.

Prior to November 2013, the consumption pricing assigned to the Monetary Commitment was a combined product of the Volume Agreement price band (Level A-D) and Commitment Volume (The Commitment Volume providing an additional discount off consumption rates via the Azure Enterprise Portal). Conversely, the Azure refresh on November 1st 2013 provided a simplified pricing model, with the Customer Pricing Sheet (CPS) providing the ‘actual price’ of Azure services aligned to Microsoft EA pricing waterfall.

Overage Pricing and Consumption Allowance

On November 1st 2013, Microsoft removed the penalty pricing for overage consumption above the consumption allowance and consolidated to a single subscription option, with an ability to adjust services at agreement anniversary. Microsoft adopted to reign in the ‘use it or lose it’ perception of the service.

Ordering was simplified by removing the complex, and ever expanding ‘future pricing table’ embedded within the Customer Pricing Sheet (CPS). This continues to be an optional inclusion, and incorporated subject to customer request or following a non-programmatic price discount.

Higher usage rates were in place for consumption of Windows Azure services in excess of Monetary Commitment

On November 1st 2013, the ‘overage penalty’ was removed for both direct and indirect agreements, and the Commitment SKU Price was matched to the pricing of the Overage SKU.

This reflected a drive to incentivise adoption of greater Windows Azure resources without the perceived risk associated with the overage penalty model and align consumption of Azure to the EA purchasing model.

This was extended in Microsoft’s approach to the ‘consumption allowance’ for direct contract customers. Wherein, the threshold was extended to 50% overage of the annual Monetary Commitment to resources. Any additional usage over the monetary commitment, but below the consumption allowance, is invoiced annually in arrears; any additional usage over the monetary commitment, and in excess of the consumption allowance, is invoiced quarterly in arrears.

Subscriptions Option and Service Reduction

Customers who previously signed a 36 month or co-terminus subscription to Azure would commit to the Monetary Commitment value (£) for the term of the enrollment; Microsoft responded to this unbalanced approach to commitment versus risk to allow an annual service reduction. This allowed service reduction programmatically, devolved to the licensing solutions provider (LSP) within channel managed METEAOP process.

Customers who previously elected for the preferred 12 Month subscription model are permitted to ‘top up’ the then existing term, but upon renewal, subscription terms must be realigned to be co-terminus with the agreement enrollment.

Existing customers who committed to Azure within the EA procurement model framework will receive the existing commercial service use transition over the then current term; the new commercial model are summarised in the table below.

Azure Purchasing Programs

Organisations can add Azure to an existing (or new) EA by making an upfront monetary commitment.

The resource is consumed throughout the year by using any combination of the cloud services available within Windows Azure.

If usage exceeds the upfront ‘credit’ amount, the licensee will be billed in arrears for that usage (importantly without penalty) annually for up to an additional 50% of the monetary commitment, and quarterly for any overage for direct contracts.

If the annual consumption does not meet the monetary commitment by the next anniversary, any unused monetary commitment is still forfeited. The hope of Microsoft, is that the annual service reduction allowance mitigates the commercial risk associated with earlier commercial models

Microsoft have extended the Enterprise Agreement (EA) model to act as a primary purchasing platform for all service usage, supporting aggregation of internal use requirements and optional support for a hosted/managed service business (only as part of a solution) under a single contract and management portal.

Product Licensing Overview

A comprehensive review of license asset mobility is strongly recommended for organisations that elect to move workloads to hosted services and public cloud offerings. Understanding when a existing license asset, is eligible for re-assignment to a hosted datacenter is critical to understand an optimum approach and compliance with software use terms. Microsoft introduced License Mobility as defined at the product level for certain server applications. This drives two intended behaviours, driving a relational contract with Microsoft for current on-premise deployments to ensure ongoing asset mobility, and underwrites a case for the portfolio of extended use terms with Software Assurance (SA) outside of the commonly associated soft benefits and new version rights.

The comparison between an ongoing commitment to maintenance in a volume agreement may principally come down to whether this is intended as a ‘full time’ workload or a ‘short term’ workload; with a overall comparison of Windows Azure versus an annualised commitment to Software Assurance (SA) for the relevant application servers.

Windows Server is not covered under License Mobility, but Microsoft have extended the software use terms for Volume Licensing customers, to support upload of Windows Server to Windows Azure (if they are bringing it as part of another License Mobility eligible product).

Microsoft will continue to charge for the Windows Server VM at the service rate applicable for the instance.

Windows Server CALs are not required for accessing Windows Server running in Windows Azure as access rights are included in the “per-minute” charge for the Virtual Machines

Customers can also adopt the License Mobility extended use right under Software Assurance (SA) to assign System Center 2012 license(s) to a Windows Server instance running on Windows Azure.

System Center Standard license can be assigned to manage 2 VMs

System Center Datacenter, can be assigned to manage 8 VMs

Customers can adopt two approaches for SQL Server, the first approach is to obtain the relevant SQL image from Windows Azure on a “pay-per-minute” service rate; the second approach is to upload the relevant SQL image under the License Mobility extended use terms available under ‘active’ Software Assurance (SA).

Similarly, if the customer is a hosted service provider, and the end-customer is not able to assign eligible license assets under the extended use terms, upon signing of the Service Provider License Agreement (SPLA) the hosted service provider can:

Obtain a SQL image from the Windows Azure VM gallery and pay the per-minute rate of SQL Server, or

Obtain a SQL image from the Windows Azure VM gallery and pay the per-minute rate of SQL Server

Effective January 1, 2014, Volume Licensing customers who have active Software Assurance on their RDS User CALs are entitled to RDS CAL Extended Rights, which allow use of their RDS User CAL with Software Assurance against a Windows Server running on Windows Azure or other service providers’ shared server environments.

This RDS User CAL Software Assurance benefit allows each User to access RDS functionality only on one shared server environment (i.e. Windows Azure or a third party server) in addition to access the respective on premise servers.

To avail this benefit, please complete and submit the License Mobility Verification form to either Windows Azure or an Authorized Mobility Partner where the hosted graphical user interface will be running. More details are available in Appendix 2 of the Software Assurance benefit section of the PUR (Product Use Rights).

Microsoft care careful to emphasise that Windows 7 or Windows 8 are not available as a multi-tenant Desktop-as-a-Service on Azure or any other Service Provider.

MSDN: At the point in time of June 1st, 2013, any current MSDN subscriber who activated their subscription may run most of the software licensed under MSDN on Windows Azure VMs, providing greater flexibility for developing and testing applications.

This cloud use right applies to all software included in the MSDN subscription except Windows client and Windows Server.

Windows Client OS (Windows 7, Windows 8) is only licensed to run on local devices.

MSDN subscribers can run Windows Server on Windows Azure VMs, but since this is not included as part of the cloud use rights, subscribers will be charged at the rate of Windows Server Virtual Machines.

This cloud use right be available through Qualified MSDN Cloud Partners as well.

In addition to this new use right for MSDN subscribers, Microsoft updated the Windows Azure MSDN benefit to provide MSDN subscribers a monthly credit to use toward Windows Azure services and reduced rates for running Windows Server Virtual Machines.

A full comparative approach to cloud strategy analysis, while not in scope of this article, can be explored with SoftwareONE Advisory Services.

2014 Summary

Microsoft aim to provide more transparency, customers commit to an annual monetary amount as part of an Enterprise Agreement (EA) purchasing programs and receive an incentivised price point aligned to the EA waterfall (A-D)

Pricing in the Customer Price Sheet (CPS) and detailed ‘future pricing table’ available only upon explicit customer request

The consumption allowance for direct contract customers, allows a threshold of 50% overage of the annual Monetary Commitment to resources, billed at the end of the year. Threshold notices are sent at 50%, 75%, 90% and 100% of threshold.

Any additional usage over the monetary commitment, but below the consumption allowance, is invoiced annually in arrears; any additional usage over the monetary commitment, and in excess of the consumption allowance, is invoiced quarterly in arrears.

>50% beyond commitment initiates quarterly billing

Organisations who pre-commit to set upfront commitment may be eligible for monetary service credit to Windows Azure Account.

Organisations can also leverage an accredited partner for support with activation, testing and deployment.

As discussed in this article, it is recommended to work with a expert with access to an accurate cloud pricing analysis platform, this may require an independent advisory practice (with expertise across commercial, governance and technical disciplines) interoperable with global accreditation as a ‘cloud broker’ for all principal service providers. Arguably, only this level of accreditation, global presence and independent consultancy across disciplines, (which is principally vendor agnostic), with visibility of on-premise approaches can support a framework for comparative pricing analysis of cloud services.

A full comparative approach to cloud strategy , taking into account on-premise software strategy (while not in scope of this article) can be explored with SoftwareONE Advisory Services.

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